May 02, 2012

In episode one, we looked at “debt money” and how it is impossible to pay off our national debt unless we start having our U.S. government issue our money. In episode two, we saw the Republicans jack up our national debt like crazy. I know many of you didn’t believe what you were reading and had to look it up for yourselves.

Good. Believe nothing. Confirm everything.

Today we’ll see why the Republicans exploded our national debt. But, first a question: How does our government get its money? Taxes, yes, but there is another way, too. When our government needs more money than it raises with taxes, it “borrows” money from the Federal Reserve, increasing our national debt. I put “borrows” in quotes because the Fed doesn’t have any money; it just prints up Federal Reserve banknotes and trades them for U.S. Treasury Bonds. These Treasury Bonds, created to raise money, are our national debt.

Republicans continually vote to increase our national debt because they represent the wealthy and printing more money benefits the rich. You may be poor or a worker and yet vote Republican. Many do. Typically, you were splintered away from the Democratic Party using divisive, wedge issues that don’t involve money such as abortion, gays and guns — you know: “family values.” But the actual Republican base is wealthy and by borrowing $1 trillion, that money doesn’t have to be raised by taxes — which they, being rich, would have to pay.

When this new money enters our economy, we have inflation; and inflation is an insidious, hidden tax affecting the poor and middle classes — and the poorer you are, the more it hurts. If you are truly wealthy, what do you care if your driver fills your limo with gas at $3 a gallon or $10? You’ll probably just write it off as a business expense anyway, reducing your true cost to about half. Higher interest rates cause more money to flow into your accounts from all the poor saps who owe you. And you own your home, so inflationary rent increases aren’t your problem; it’s a problem for all your working-class tenants.

In fact, the rich actually benefit from inflation with an increase in the value of, and income from, their properties, raw materials and manufactured goods, while their personal asset managers reposition them out of cash and bonds and into real estate, stocks and commodities. If you are poor, work for a living or are retired on a fixed income, you suffer as the world around you costs more and more and more. In your world, your “assets” on the couch in front of the TV and the only adjustment you can make is to your belt.

To determine which side you are on, ask yourself: Is inflation beneficial or detrimental to me?

Progressives, on the other hand, favor a progressive income tax — incrementally affecting the rich, richer and richest — those benefitting most from our economy and most able to pay — instead of an inflationary tax, targeting the workers, retired and the poor — those least able to pay.

As your congressional representatives ponder yet another tax cut for the rich, you should remind them that we average Americans have already paid $14 trillion in taxes for the wealthy during the last 30 years and it’s about time they stepped up and paid their fair share.

But wait, there’s more. There is another, much more sinister reason why the Republicans want to keep raising the national debt, but that explanation will have to wait until next time.

In our last episode, we discussed “debt money” and the fact we can’t possibly pay off our national debt — no matter how hard we try — until the U.S. government starts to issue our nation’s money. Today, we’ll look at where this debt came from. I realize many of you believe it came from President Obama, but that is not quite right. It’s true Obama is at the helm of the ship of state, but his orders are continually countermanded by a mutinous crew of Republicans in Congress, apparently, appallingly, willing to run America’s economy onto the rocks in order to regain the presidency. Other than an Obama stimulus bill passed early on, this ship has been locked on the course set by his predecessor, Bush II.

But I’m getting ahead of myself.

So, where did this debt come from? From the founding of our country up through the Carter administration, our U.S. national debt was about $1 trillion. After 200 of history, including the Revolutionary War, the Civil War, two World Wars, the Great Depression with Franklin Roosevelt’s “wild socialist” spending policies, the Korean conflict, the Vietnam debacle and the Free Love Hippie era — from the Minuet to Acid Rock — our national debt was less than $1 trillion.

Venerated Republican, Ronald Reagan, with his staunchly Republican Senate, tripled our national debt. Congratulations! After only eight years of revered Reaganomics, our debt stood at $3 trillion and the United States had made that epochal swing from the world’s largest creditor nation to the world’s largest debtor nation. Congratulations again!! I forget, was that the actual goal of the Republican’s Contract with America? Not to be outdone, Republican successor, George H.W. Bush, who disparaged Reaganomics as “voodoo economics,” got our debt to $5 trillion — duplicating eight years of Reagan deficits in a mere four.

Eight years of progressive Democrat Bill Clinton raised it another $1 trillion to $6 trillion. But remember, he dug his way out of the deep budgetary hole and recession left for him by Bush I, and Clinton’s budgets were actually running surpluses at the end. Finally, after eight years of Republican Bush II, with his lock-step, steamroller Republican Congress, we owed an additional $5 trillion. Of course, that’s not counting the two excessively long, expensive and unnecessary wars that he kept off the books, Enron-style, the multitrillion-dollar bank bailout mess and that steaming pile of recession he dumped on Main Street for us taxpayers to clean up. Honk if you remember the eerily prophetic bumper sticker from the early 2000s: “Drunken Frat Boy Drives Country into Ditch.”

Here’s a quote to consider: “Reagan proved deficits don’t matter.” That’s from former Vice President Dick Cheney from November 2002. Cheney is partly correct; deficits don’t matter politically when corporate media ignore them, but it does matter to us taxpayers when the Republicans’ credit card bills arrive at the home of a Democratic president.

Now it’s Obama’s job to try to turn this giant ship around and it’s still stuck on autopilot. The Bush recession continues, his wars go on, the spending goes on, the tax-cuts for the rich go on and the debts continue unabated. Of course, it’s all Obama’s fault.

Pop quiz! Two questions: 1. Now that the tax cuts for the rich have been extended, will wealthy “job creators” start creating jobs? 2. What stopped them from creating jobs during the last 10 years that these tax cuts have been around?

It’s common knowledge that our national debt is well over $14 trillion and rising rapidly. What most people don’t realize is that this debt is an integral component of our nation’s economy. It is, in effect, the lifeblood of our monetary system and if we were to pay it off, we would have no money in circulation. In fact, merely starting to pay it down would swiftly abort our embryonic recovery by gutting our nation’s money supply.

To truly understand the economic significance of our national debt, we need to go back to 1863.

America was a house divided, at war with itself and in critical need of a great deal of money. As any banker will be happy to tell you, wars are expensive. Using the extreme duress of Civil War, Northern bankers pushed their National Banking Act through Congress — and what a scam it was! Yes, they would be happy to supply Lincoln’s army with bank notes, colorful little pieces of paper that were printed and issued by their banks, in exchange for an equal amount of U.S. Treasury Bonds, which would pay the bankers both principal and interest in gold.

Our national debt, which had been paid off by Populist Andrew Jackson in 1835, exploded from a manageable $60 million in 1860 to nearly $3 billion by 1865. This debt was in the form of U.S. Treasury Bonds held by the bankers and these bonds formed the “fractional reserve” basis for their bank loans. Using fractional reserves, the bankers were able to issue and loan out $10 in bank notes for every dollar of U.S. Treasury Bonds stored in their vaults.

After the war, almost all the currency of the entire U.S. economy consisted of bank notes issued by privately owned banks and paying down $1 of national debt contracted the U.S. money supply by $10. When virtually every dollar in circulation has to be borrowed from banks, this is called “debt money.” In addition to the obvious banker’s interest fees, payable on every dollar, debt money also results in a hidden, additional cost built into every product and service.

Luckily for us modern Americans, the National Banking Act of 1863 is simply a sad page in our history books and we can rightfully laugh at our ancestors’ wasteful folly. Today, we have the Federal Reserve! But, believe it or not, the Federal Reserve Banks are all privately owned banks, they issue their bank notes, Federal Reserve Notes, dollar for dollar in exchange for U.S. Treasury Bonds and now, exactly as in the past, if we pay down our national debt, our economy is drained of its lifeblood.

As ridiculous as it sounds, to this day, our great nation still lacks government-issued money.

It is impossible to eliminate our national debt without first eliminating our absurd debt money system. How? Easy! All we need to do is have our dollars issued by the U.S. Treasury — as specified in our Constitution. These Treasury dollars could be used to buy back our Treasury Bonds which, in turn, would retire the Federal Reserve bank notes in circulation. Replacement of Federal Reserve bank notes dollar for dollar with U.S. Treasury Notes would not cause any inflation as the same total number of dollars would be circulating. Our national debt could be paid down rapidly without imploding the economy and the very real problems of debt money — the hundreds of billions of dollars we taxpayers waste on interest payments every year and the hidden costs imbedded in all products and services — would rapidly evaporate.

October 07, 2008

About Michael Kirchubel

Flint On SteelMichael Kirchubel moved to Fairfield with his family in 1954 when the population was about 4,000. (Things have changed.) He went to Fairfield Elementary when the mascot was the black panther and graduated from Armijo in 1966. He moved to San Francisco and eventually graduated from SF State. He worked 10 years with San Francisco Emergency Services, as a broker for Merrill Lynch and now as a nurse at Kaiser hospital. He has always wanted to know how everything works: biological, mechanical and political.